NOTE 3 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

We account for our investment in the following unconsolidated joint ventures using the equity method of accounting. As of September 30, 2011 and December 31, 2010, our investment in unconsolidated joint ventures consists of the following:

Joint Venture	Hotel Properties	Percent Owned			Preferred Return		September 30, 2011		December 31, 2010

Inn American Hospitality at Ewing, LLC	Courtyard by Marriott, Ewing, NJ		50.0	%	11.0% cumulative		$	-	$	28
SB Partners, LLC	Holiday Inn Express, South Boston, MA		50.0	%		N/A		1,736		1,852
Hiren Boston, LLC	Courtyard by Marriott, South Boston, MA		50.0	%		N/A		5,017		-
Mystic Partners, LLC	Hilton and Marriott branded hotels in CT and RI		8.8%-66.7	%	8.5% non-cumulative			22,905		25,935
Metro 29th Street Associates, LLC	Holiday Inn Express, New York, NY		50.0	%		N/A		7,943		7,746
							$	37,601	$	35,561

On April 13, 2010, we purchased a mortgage loan secured by the Courtyard by Marriott, South Boston, MA from Hiren Boston, LLC's lender for a purchase price of $13,750. As a result of the purchase of this mortgage loan, we determined that we were the primary beneficiary of Hiren Boston, LLC and, as such, we ceased to account for our investment in Hiren Boston, LLC under the equity method of accounting and began accounting for Hiren Boston, LLC as a consolidated subsidiary. Our interest in Hiren Boston, LLC was remeasured, and as a result, during the nine months ended September 30, 2010 we recorded a gain of approximately $2,190.

On June 20, 2011, Hiren Boston, LLC refinanced its debt with a third party institutional lender and, as a result, our mortgage interest in the property was terminated and the outstanding principal balance of $13,750 was repaid to us in full. We have determined that we are no longer the primary beneficiary of Hiren Boston, LLC and it is no longer a consolidated subsidiary of the Company and we have begun to account for our investment in Hiren Boston, LLC under the equity method of accounting. Our interest in Hiren Boston, LLC has been remeasured and, as a result, we have recorded a gain of approximately $2,757 for the nine months ended September 30, 2011. The fair value of our interest in Hiren Boston, LLC was based on a third party appraisal, which utilized the market approach.

On August 15, 2011, the Company entered into two purchase and sale agreements to dispose of a portfolio of 18 non-core hotel properties, four of which are owned in part by the Company through an unconsolidated joint venture. As a result of entering into these purchase and sale agreements, we have recorded an impairment loss of approximately $1,677 for those assets for which our investment in the unconsolidated joint venture did not exceed the net proceeds distributable to us based on the purchase price. These purchase and sale agreements provide that sales of the individual properties may close at different times, and ultimately not all properties may transfer. However, management believes all sales of all such properties will close and anticipate recording a gain of approximately $1,886 for those hotel properties in which the net proceeds distributable to us exceeds our investment in the joint venture. Any recognized gain will be recorded upon the disposition. See “Note 12 – Discontinued Operations” for more information.

Income or loss from our unconsolidated joint ventures is allocated to us and our joint venture partners consistent with the allocation of cash distributions in accordance with the joint venture agreements. Any difference between the carrying amount of these investments and the underlying equity in net assets is amortized over the expected useful lives of the properties and other intangible assets. Income recognized during the three and nine months ended September 30, 2011 and 2010 for our investments in unconsolidated joint ventures is as follows:


	Three Months Ended						Nine Months Ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Inn American Hospitality at Ewing, LLC		-			(81	)		(28	)		(177	)
SB Partners, LLC		73			80			(116	)		15
Hiren Boston, LLC		145			-			140			-
Mystic Partners, LLC		(390	)		(413	)		(1,265	)		(1,243	)
Metro 29th Street Associates, LLC		279			171			197			(9	)
		107			(243	)		(1,072	)		(1,414	)
Impairment from Unconsolidated Joint Ventures		(1,677	)		-			(1,677	)		-
Gain from Remeasurement of Investment in Unconsolidated Joint Venture		-			-			2,757			4,008

Income (Loss) from Unconsolidated Joint Venture Investments	$	(1,570	)	$	(243	)	$	8		$	2,594

On January 1, 2010, we acquired our joint venture partner's 52.0% membership interest in PRA Glastonbury, LLC, the owner of the Hilton Garden Inn, Glastonbury, CT, and this hotel became one of our wholly-owned hotels. Due to the increase in our ownership interest in PRA Glastonbury, LLC, the value of our existing 48.0% interest was remeasured resulting in a $1,818 gain which was recorded upon our acquisition of the remaining interests in the Hilton Garden Inn, Glastonbury, CT.

The following tables set forth the total assets, liabilities, equity and components of net income (loss), including the Company's share, related to the unconsolidated joint ventures discussed above as of September 30, 2011 and December 31, 2010 and for the three and nine months ended September 30, 2011 and 2010:

Balance Sheets
	September 30, 2011			December 31, 2010
Assets
Investment in hotel properties, net	$	141,556		$	144,675
Other Assets		33,282			27,970
Assets Held For Sale		19,147			-
Total Assets	$	193,985		$	172,645

Liabilities and Equity
Mortgages and notes payable	$	139,700		$	156,976
Other liabilities		41,130			37,797
Liabilities Related to Assets Held For Sale		31,361			-
Equity:
Hersha Hospitality Trust		42,972			38,394
Joint Venture Partner(s)		(61,178	)		(60,522	)
Total Equity		(18,206	)		(22,128	)

Total Liabilities and Equity	$	193,985		$	172,645

Statements of Operations
	Three Months Ended						Nine Months Ended
	September 30, 2011			September 30, 2010			September 30, 2011			September 30, 2010
Room Revenue	$	20,153		$	16,921		$	50,116		$	46,726
Other Revenue		4,911			4,655			15,590			15,128
Operating Expenses		(15,984	)		(14,197	)		(43,678	)		(41,793	)
Interest Expense		(2,197	)		(2,440	)		(6,101	)		(7,630	)
Lease Expense		(1,406	)		(1,332	)		(4,031	)		(4,030	)
Property Taxes and Insurance		(1,171	)		(1,443	)		(3,742	)		(4,904	)
General and Administrative		(1,461	)		(1,632	)		(4,399	)		(4,666	)
Loss Allocated to Noncontrolling Interests		(51	)		115			(93	)		441
Depreciation and Amortization		(1,862	)		(2,173	)		(5,224	)		(7,447	)

Net Income (loss) From Continuing Operations	$	932		$	(1,526	)	$	(1,562	)	$	(8,175	)
Income from Discontinued Operations		889			703			1,458			1,141

Net Income (Loss)	$	1,821		$	(823	)	$	(104	)	$	(7,034	)

The following table is a reconciliation of the Company's share in the unconsolidated joint ventures' equity to the Company's investment in the unconsolidated joint ventures as presented on the Company's balance sheets as of September 30, 2011 and December 31, 2010:

	September 30, 2011			December 31, 2010
Company's share of equity recorded on the joint ventures' financial statements	$	42,972		$	38,394
Adjustment to reconcile the Company's share of equity recorded on the joint ventures' financial statements to our investment in unconsoldiated joint ventures(1)		(5,371	)		(2,833	)
Investment in Unconsolidated Joint Ventures	$	37,601		$	35,561

(1)

Adjustment to reconcile the Company's share of equity recorded on the joint ventures' financial statements to our investment in unconsolidated joint ventures consists of the following:

● cumulative impairment of our investment in joint ventures not reflected on the joint ventures' financial statements;

● our basis in the investment in joint ventures not recorded on the joint ventures' financial statements; and

● accumulated amortization of our equity in joint ventures that reflects our portion of the excess of the fair value of joint ventures' assets on the date of our investment over the carrying value of the assets recorded on the joint ventures' financial statements. This basis difference is amortized over the life of the properties with the amortization being included in Income from Unconsolidated Joint Venture Investments on our consolidated statements of operations.